Setting up a plan

We understand that organising business protection can seem complicated. But once you've agreed with a client what cover best suits their needs, we can help guide you through the process of submitting their application.

Once you've discussed the client's business protection needs, how do you start to build the cover? Firstly, it's important to consider the cost of replacing a key person. The contribution they make to the profit of the business should be covered for the first year from their death or critical illness. Is there a director's loan account that needs to be covered? What about business loans? Bank loans may have been taken out with loan security attached to a personal property, for example, a family home. It's crucial the personal estates of key people are covered, not just the business.

Once the amount of cover has been calculated, how it's set up depends upon the type of business. For example, is it a sole trader, limited company or partnership? If a sole trader is the key person, then personal protection may be more appropriate. However, if they have a key employee they could take out a plan on them to protect their business interests and if the sole trader has a bank loan or other financial obligations, additional cover needs to be considered.

In the case of limited companies, the company would be the owner and a plan would be taken out on the life of the key people in the business. The company would receive the benefits and spend the pay-out according to the business's needs, for example, the cost of replacing a key person or repaying a loan.

With partnerships and limited liability partnerships, partners have joint liability for the debts of the business. Equity partners, the owners of the business, would take out a plan on their own lives to cover the value of their loss as a key person. Cover would be in their names under a business trust and the benefits would be available to the surviving partners. An employee of a partnership wouldn't be expected to take out a plan on their own life. So a senior partner would take out a plan on the life of the employee. This would also be under a business trust, so the benefits are available to all partners.

Once you have key person protection in place to make sure the business stays in business, you should also consider ownership issues and succession planning, which I'll cover very briefly. What would happen to business shares on the death of a shareholder? It's important to find out what business owners would want to happen to the shares if they died.

Have a conversation with your clients to find out if they have a business will in place, so that if the worst happens it's clear who the shares go to, what the shareholder's estate would want to do with them and what the other business owners would want to happen with the shares. Setting up a business will helps make sure the estate of any shareholder who dies gets fair market value for the shares and that the remaining shareholders retain control of the business.

Once you know which cover suits your clients best, we're here to help you throughout the whole application process. Business protection plans tend to be more complex than personal protection plans, because there are more people to cover. Your business protection clients may also be a bit older than your personal protection clients, so they might have more medical information to tell us about. This means applications may take a little longer to underwrite. However, we give you your own dedicated case manager and underwriter to look after all your applications.

Your case manager will give you regular updates by phone or email and will request any additional evidence for your cases, such as GP reports. You can also contact your underwriter directly to check what information and evidence to include before you submit an application, which can help speed up the underwriting process. If you don't know who your case manager or underwriter are or if you're new to us, just give us a call and we'll put you through. Remember, you can submit your applications online, which is often quicker and easier than traditional paper-based applications.

The information we'll need

As with personal menu plan applications, full disclosure is important. To help us fairly and accurately underwrite your client's application we need as much information as possible. And the more information we get, the quicker we can set up the plan.

Even details which may seem unnecessary are important when setting up a business protection plan. For example, your client's occupation and duties will help us to work out their risk category and the definition of disability or incapacity we can apply to their covers.

We're here to help

You may find your business protection clients are a bit older than your personal clients, so they might have more medical information to tell us. This means applications may take a bit longer to underwrite. However, we give you a case manager and underwriter to look after your applications.

Your case manager will give you regular updates by phone or email and will request any additional evidence for your cases, such as GP reports. You can also contact the underwriter directly to check what information and evidence to include before you submit an application, which can help speed up the underwriting process.

If you don't know who your case manager or underwriter are, or if you're new to us, just give us a call on 0345 6094 500 and we'll put you through.

Financial underwriting

Depending on the type of protection and the size of the case, we may need more financial information to help us underwrite the application, such as:

Key person protection - an idea of why the key person is important to the business, their contribution to the net/gross profits, and what it would cost to replace them.

If you're unsure about what type of financial information you should include, our underwriters will be happy to help.

Tax and trusts

When putting together a recommendation for a client, you should bear in mind any tax consequences. Whether its income tax, capital gains tax, inheritance tax or corporation tax, it will all depend on the exact arrangement and the type of business they own - a company, partnership or sole trader.

Trusts can help make sure the money from the plan ends up in the right hands at the right time.

There are two main benefits of putting a client's plan in trust:

We'll be able to pay a claim more quickly.

The payout may be free of inheritance tax – for 2019/20, inheritance tax is payable at 40% on an estate worth over £325,000.

Take a look at our trust tool for guidance on which type of trust and assignment forms to use for business protection.

We also have business protection experts to help you with any tax or technical questions you may have. You can contact them at protectionhelp@royallondon.com or on 0345 6094 500.

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit royallondon.com.

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.

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This website is intended for financial advisers only and shouldn’t be relied upon by any other person. If you are not an adviser, please visit the main Royal London website.

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